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Foreword
McKinsey and Efma are pleased to present this new report which shows how leading European banks are preparing to take advantage of the growing mobile opportunity. Our joint study comprising interviews and survey responses from more than 150 banks and their top executives reveals a fascinating pattern of results. We hope that the report will provide readers with fact-based information that allows them to chart their way on this exciting journey.
Exhibit 1
Faster payments
Exhibit 2
Banks expect mobile to fundamentally retail banking Banks expect mobile to fundamentally changechange retail banking
Mobile banking will fundamentally change retail banking in next 510 years % respondents Customers using mobile devices for banking activities today and [expected] in 5 years Percentage
Mobile banking today Mobile banking in 5 years time
11
Neither agree nor 19 disagree
Dont know 1
<25
2534
3544
60+
Our survey responses vary widely on the outlook for more advanced and novel mobile features, with no convincing majority heading in one direction. Some plan to introduce more sophisticated financial services (such as budgeting tools), while others expect to integrate with 3rd party payment systems or non-banking add-ons like social networking or retail product vouchers. Our survey also sought to examine the likely financial impact of mobile banking. In this respect, half the executives thought that the opportunity mobile provides to better meet customer preferences, increase loyalty, and strengthen relationships would have a positive impact on their banks profits. Only 4% anticipate that the financial impact of mobile banking will be negative. More than 50% of banks see investments in mobile leading to either some or a significant increase in revenues from all products except mortgages, with the rest of the respondents not expecting any change. Exactly how they would gain these extra revenues as a result of mobile devices, however, was not made clear. On the cost side banks face an interesting balancing act. Our respondents on the whole feel that reductions in back-office and existing channels will likely be offset by increases in IT and mobile channel costs (for example, due to the proliferation of mobile platforms on which they will have to be represented to achieve full coverage of their customer base).
Exhibit 3
14
Current budget year only 1-10 69 Current and next year only 1120 2130 >50 8 1 6 Current and for at least next 2 years only
40
28
18 All Banks
All Banks
Exhibit 4
The characteristics of the mobile devicedevice three major opportunites The characteristics of the mobile create create three major opportunities
Easy to use
24/7 access
1 Ultra convenient & innovative banking 2 Digital commerce 3 Disrupting new markets
Unique ID
Geographical positioning
2. Digital commerce
The internet has resulted in a revolution in consumer commerce. However, that transformation was typically represented through enabling pre-purchase online research; consumers still made the majority of their purchases offline as they wanted to see and feel what they were buying in the store. Smartphones are the catalyst for the next revolution in digital commerce they allow customers to take the internet with them into stores. The opportunity is massive with multiple players vying to capture the customer; Google, PayPal, Facebook, Amazon among others. Banks must ensure they are part of this revolution. Rather than trying to own the end-to-end value chain, they should develop strong consumer digital commerce propositions for merchants and third parties. This means banks acting as the engine that drives digital commerce from the pre-purchase phase (combining bank and non-bank data to deliver event- and location- based discount offers), to purchase financing (instant credit available at point of sale via the SMS and mobile apps), to transaction processing (bank-enabled mobile e-wallets replacing cash and cards), and finally through to consumer post-purchase activities.
In order to decide whether they are best placed to be a shaper, leader or follower, and how decisively to act versus competitors, we have seen banks consider a range of criteria: Existing internal channel and data capabilities banks that have developed an integrated
Exhibit 5 Majority
Follower
Leader
Shaper
Mobile friendly
Multichannel to
deliver ultimate convenience Drive sales via mobile Reduce cost to serve
Groundbreaking Active
services
partnerships
10
multi-channel management approach using advanced CRM techniques are better positioned to leverage mobile. A bank without such capabilities may struggle to rapidly lead or shape the mobile opportunity. Existing customer (retail and acquirer) footprint banks will be better positioned to shape the digital commerce landscape if they have a broad range of relationships with retail customers and merchants. Similarly, a bank with a sub-scale branch network in either developed or developing markets has a great opportunity to shape or lead a digital banking proposition based on mobile. This is because the cost of transforming its existing channels is lower. Existing partnerships and relationships banks that start off with established relationships in place with, for example, telcos, cloud service providers and merchants are more likely to rapidly establish a winning position in the new banking landscape.
Management appetite some strategic postures will be conditional on the willingness of bank management teams to accept the risks inherent in innovation and experimentation. Not all will be successful. Exposure to attackers The extent to which bank managements feel their core franchise may be vulnerable to attackers such as telcos and retailers in their home market will influence the speed of their response.
Once banks have decided on their overall positioning and level of aggression, what concrete actions should they take to integrate mobile banking into their strategies and business plans? We see a number of issues that shapers, leaders, and followers must address in pursuit of maximizing their bottom-line impact. (exhibit 6): Mobile vision. Few banks currently look beyond the online version of traditional banking. Creating
Exhibit 6
Follower Mobile vision Partnership model Payments gameplan Low cost attacker Multichannel strategy Mobile governance Net-cost down Mobile basics Medium term plan for groundbreaking products and services Adaptable framework that allows rapid inclusion (and exclusion) of external parties How to benefit from the shifting and increasingly complex eco system for payments and transfers Anti-incumbent strategy built on remote channels only (mobile and internet) Optimal solution of which products & services to offer in which channel to whom Organization and processes that ensure end-to-end efficiency and coordination versus the customer Cost reduction plan to avoid mobile being an extra cost instead of efficiency measure Near term plan for basic but competitive mobile offering for the local market
Leader
Shaper
11
a mobile vision will help guide the development of groundbreaking products and services and provide the lens through which to measure market leadership. The vision should include a tangible section on products and services even if the technology or the customer demand to support it is yet to materialize Partnership model. The banking industry has confronted technological change in the past by turning to external providers, for example vendors of IT services. Whats different about mobile banking is the pace of innovation. Successful players need a flexible framework that can quickly accommodate external parties as providers of services and products or joint venture partners. Payments gameplan. One of the biggest mobile banking opportunities is in payments. The winners and losers in this area have yet to emerge so the benefits of taking a leading position in the transformation of the payments and transfers landscape are likely to be considerable. Low cost attackers. The advent of mobile banking allows banks to shift two gears in the low-cost game one in emerging and one in mature markets. In emerging markets the low-cost model opens up an opportunity rapidly to capture a significant share of
the unbanked population. In more mature markets, the combination of mobile and internet represents a highly competitive alternative to traditional banks lumbered with the cost burden of a branch network Multichannel strategy. Multichannel strategy has been a central part of banks thinking for some time, even if few yet have a clear plan to match products and services to particular channels and who they should be aimed at. Either way, the advent of mobile banking requires banks to reconsider the best ways to serve their customers and to find the most appropriate channels. Mobile governance. The addition of a mobile channel will force many banks to sort out the governance and co-ordination challenge of multichannel once and for all. Any mobile effort will require a carefully devised organizational response and the setting-up of internal procedures. Net-cost down. To date, mobile banking has brought additional costs despite a lower cost for each transaction. Mobiles efficiency as far as the customer is concerned is unquestioned, but banks need must work to ensure that it brings lower overall costs at the same time as maintaining or improving customer satisfaction.
Mobile banking is revolutionizing the customer experience in banking, with non-bank organizations often leading the way. Banks recognize this development, but admit they are not acting or investing accordingly. The mobile device creates distinct areas of opportunity but the economic benefit to the industry as a whole will be limited and the banks that gain most will be those that act quickly and decisively.
Marc Lien is an Associate Principal in the London office of McKinsey. Sebastian Sjberg is an Associate Principal in the Stockholm office and Radboud Vlaar a Principal in the Amsterdam office.
The authors would like to acknowledge the contributions to this article of Anant Atal, Filippo Delzi, Olivier Denecker, Sidhart Garg, Vito Giudici, Sneha Elizabeth Joseph, Megha Kensal, Birgit Kreger and Jan Overbeeke
Global Banking Practice August 2011 Designed by Visual Media Europe Copyright McKinsey & Company
www.mckinsey.com